Suppose that property can be considered a perpetuity, generating a perpetual income stream Ri each year forever Assume that the constant discount rate is r In the case of a perpetuity, the value of the property is simply V Ri r a Assume that Ri $4,000 and r 0 05 Compute the value of the property b Assume that Ri $4,000 and r 0 06 Compute the value of the property Explain the effect of a higher discount rate on the value of the property c Assume that Ri $5,000 and r 0 06 Compute the value of the property Explain the effect of a higher net income stream on the value of the property d Assume that Ri $5,000 and r 0 06 Assume further that there is a property tax Ti $1,000 per year and public service provision value of Si $800 per year Compute the value of the property Explain the effects of the property tax and public services on the value of the property

Question: Suppose that property can be considered a perpetuity, generating a perpetual income stream Ri each year forever. Assume that the constant discount rate is r.

Suppose that property can be considered a perpetuity, generating a perpetual income stream Ri each year forever. Assume that the constant is r. In the case of a perpetuity, the value of the property is simply V = Ri/r.
a. Assume that Ri = $4,000 and r = 0.05. Compute the value of the property.
b. Assume that Ri = $4,000 and r = 0.06. Compute the value of the property. Explain the effect of a higher on the value of the property.
c. Assume that Ri = $5,000 and r = 0.06. Compute the value of the property. Explain the effect of a higher net income stream on the value of the property.
d. Assume that Ri = $5,000 and r = 0.06. Assume further that there is a property tax Ti = $1,000 per year and public service provision value of Si = $800 per year. Compute the value of the property. Explain the effects of the property tax and public services on the value of the property.

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